Performance bank guarantee cannot secure separate contractual dues; disputed damages pending arbitration are not presently payable.

A performance bank guarantee furnished for one contract could not be invoked to recover alleged dues arising from a separate contract, because the guarantee was tied to the completed works for which it had been issued. A disputed claim for damages pending arbitration was not a sum due or payable in praesenti, since liability had not been adjudicated or otherwise established. On that basis, interim protection against encashment was warranted under Section 9 of the Arbitration and Conciliation Act, 1996, and the refusal of injunction was set aside, leaving the arbitral disputes to be decided on their merits.

---

---

Issues: (i) Whether a performance bank guarantee furnished for one contract could be encashed towards alleged dues arising from another contract. (ii) Whether an unadjudicated claim for damages pending arbitration constituted a sum due or payable so as to justify recovery and defeat interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996.

Issue (i): Whether a performance bank guarantee furnished for one contract could be encashed towards alleged dues arising from another contract.

Analysis: The bank guarantee was furnished in connection with the Anand Vihar works and that contract had been completed to the satisfaction of the respondents, with a completion certificate having been issued. The alleged liability sought to be enforced related to a different contract, and the guarantee was not furnished to secure dues arising out of that other contract. In these circumstances, the respondents could not treat the performance guarantee as security for a separate and distinct contractual claim.

Conclusion: The bank guarantee could not be encashed for alleged dues arising from the other contract.

Issue (ii): Whether an unadjudicated claim for damages pending arbitration constituted a sum due or payable so as to justify recovery and defeat interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996.

Analysis: The claim asserted by the respondents was a disputed claim for damages arising out of the separate contract dated 22.08.2005 and the arbitration proceedings were still pending. A claim for damages does not become a sum due in praesenti or a sum payable until liability is adjudicated or otherwise established. The Court applied the principle that a mere claim for damages, being unascertained and disputed, cannot be equated with money presently due so as to permit recovery from securities or allied enforcement measures. The appellant therefore established a prima facie case, balance of convenience, and irreparable injury for interim protection.

Conclusion: The disputed damages claim was not a sum due or payable, and interim injunction against encashment was justified.

Final Conclusion: The impugned refusal of injunction was set aside and protection was granted against encashment of the bank guarantee, leaving the arbitral disputes to be decided on their merits.

Ratio Decidendi: A disputed claim for damages pending adjudication is not a sum presently due or payable, and a performance bank guarantee furnished for one contract cannot be invoked to secure alleged dues arising from a different contract absent a contractual or adjudicated basis.

---